HUD Implements HERA Changes to Tenant Based and Project Based Vouchers

On June 25, 2014, HUD published a notice implementing changes made by the Housing & Economic Recovery Act (HERA) of 2008 to the Tenant Based and Project Based Voucher Programs.


Two changes will make it easier to use Project-based vouchers (PBV) with the LIHTC program:

  1. The Project-Based Voucher Contract initial rent will be a “floor” rent, meaning that future reductions in local voucher payment standards will not result in PBV going lower than the payment when the PBV contract was entered into (this is similar to the gross rent floor for the LIHTC program); and
  2. The initial term of a PBV contract may be 15 years instead of ten, which makes it much easier to get lenders and investors on board with LIHTC projects using PBVs.

Another important component of the HUD notice relative to tenant-based voucher residents on LIHTC properties is that Public Housing Agencies (PHAs) are not required to conduct a rent comparability study if the rent charged for voucher units does not exceed the rent charged for LIHTC units occupied by non-voucher residents. Keep in mind however, that this notice does not prohibit PHAs from undertaking such studies in these cases.


This notice does create one possible concern for existing housing that will be utilizing a PBV contract, and that is the potential for expansion of the Davis-Bacon wage rates to “existing housing” under the PBV program. The definition of existing housing under the notice is a project that is substantially compliant with Housing Quality Standards (HQS) upon proposal selection and fully compliant with HQS when the PHA and owner enter into the HAP contract. Work done on such deals previously did not have to comply with Davis-Bacon wage rates. This final rule re-interprets the applicability of Davis-Bacon to “existing housing,” and applies to projects with nine or more units. In certain areas of the country, this could have significant impact on project costs.